Economics

Stock Transaction Tax: It's Like Slapping Yourself in the Face

|

Via Drudge comes this news, reported by The Hill newspaper, of a long-awaited (by lefties) stock transaction tax bill. Just about every sentence in the article is infuriating, in that dull way:

No caption necessary

Under a bill being drafted by Democratic Reps. Peter DeFazio (Ore.) and Ed Perlmutter (Colo.), the sale and purchase of financial instruments such as stocks, options, derivatives and futures would face a 0.25 percent tax.

The bill, a copy of which was obtained by The Hill, is titled the "Let Wall Street Pay for the Restoration of Main Street Act of 2009."

Half of the $150 billion in tax revenue would go toward reducing the deficit, while the other half would be deposited in a "Job Creation Reserve" to support new jobs.

The job fund would be available to offset the additional costs of the 2009 highway bill and other legislation that creates jobs. […]

A group of consumer watchdog organizations and labor unions sent DeFazio a letter this week supporting the tax bill.

"Your bill would put Wall Street to work for the public good, by placing a modest securities transaction tax on trades of stocks, options and swaps. A tax on these trades has little impact on the average investor or pension fund because they hold their investments for the long term, but it does disincentivize Wall Street gambling and high-volume short-term speculative trading," the organizations wrote.

Back when I made what passed for a living in part by writing an accurately titled column called The $75 Outrage for the left-wing telephone company Working Assets, I took aim at the stock transaction tax and its leading proponent, the economist Dean Baker. Excerpt:

He was trying to teach me something

Though it pains me to say something so obvious, it is clear there is still a faction on the Left that doesn't understand why we have capital markets: Yes, it helps lucky or shrewd investors earn money (while making many of their brokers rich), but that's only one side of the equation. The other side is, companies get to raise money to finance their operations for such useful endeavors as … hiring people.

It always astonishes me how liberals can complain, again and again, about how such and such community, or company, or sector desperately lacks "capital" or "investment," and then turn around and characterize Wall Street as some kind of bogus scam to make the rich richer and throw people out of work. Whether it's through a day-traded purchase of a brand new dot-com stock, or a 10-year corporate bond in GE, the capital markets allow companies to raise money that would otherwise not be available. It is an inherently democratic phenomenon—you no longer need to curry favor with the local bank president or government official just to open up a business.

Matt's Google search assignment: "stock transaction tax," "unintended consequences," and "London."

NEXT: Letters

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Thank you for that much-needed and well-written dose of sanity.

  2. The other side is, companies get to raise money to finance their operations for such useful endeavors as … hiring people.

    Companies do not engage in the useful endeavor of hiring people. Companies engage in the useful endeavor of producing goods and services for consumption.

    The jobs created are a necessary cost of these useful endeavors.

    1. Government, on the other hand, engages in the useful endeavor of hiring people. Producing goods and services is the necessary cost of this useful endeavor. And the government’s burning the midnight oil to reduce those necessary costs.

  3. Back when I made what passed for a living in part by writing an accurately titled column called The $75 Outrage for the left-wing telephone company Working Assets

    So you’re like the Ed Meese of the left…

  4. By the way, Matt, I’m just kidding on that… not that you take my calls anyway.

  5. I’m fairly certain the average pet dog understands how its dinner is produced at a much deeper level than the average liberal understands how wealth (and jobs) is produced.

    1. Yeah, and my dog appreciates me a lot more than the social entitlement recipients do.

    2. At least the liberals don’t lick their butts.

      1. Their own butts.

        1. That’s better.

  6. In the absence of speculation, no investments have value. So if these fucking moronic children think they can craft “rules” that will punish speculators but not “real investors”, they are sadly fucking mistaken.

    1. And yet there they are…

      We libertarians need to learn that just because we look at an idea and all the scientific evidence on the idea points to “crazy”, it doesn’t mean that in six months it won’t be the law of the land.

  7. Should this pass, you can say goodbye to both liquidity and a serious financial sector in this country.

    1. For plenty of Obamanauts, that’s not a bug, that’s a feature.

  8. And now I know what it was, now I know what he meant, now I know what it is, oh, oh, oh.

    1. Awesome cameo you made at Austin City Limits this year at the Pearl Jam show. Totally unexpected.

  9. The bill, a copy of which was obtained by The Hill, is titled the “Let Wall Street Pay for the Restoration of Main Street Act of 2009.”

    Holy shit, that is some seriously vomit inducing populist bullshit.

    1. i seriously took that as a joke… and i’m too damn scared to google it and find out.

    2. Wasn’t there a “Fuck You In The Ass, Assface Act” in Idiocracy?

    3. No kidding. Just another day in “Atlas Shrugged wasn’t really fiction”-land.

  10. Would someone please ask Democratic Reps. Peter DeFazio (Ore.) and Ed Perlmutter (Colo.) what power vested to them by the U.S. Constitution (the thing they swore to uphold, not the stuff they wipe their asses with) gives them the authority to enact such legislation.

    Personally I’d love to see Colbert ask them this question.

    1. DeFazio: “The Constitution is a living document. It changes with our needs.”

      Perlmutter: “Yeah. What he said.”

      Colbert: “Why do your names resemble those from the Axis Powers?”

    2. Well, this does fall quite squarely into interstate commerce and revenue collection enumerated powers. It’s no more off base (from a consitutional standpoint) than a tax on whiskey.

      1. The Whiskey Rebellion is when the entire American project nuked the fridge.

  11. Will no one have the guts to introduce the Equalization of Opportunity Bill of 2009? are there not enough shopworn bromides to fill 1900 more pages? What about Stenny Hoyer? Doesn’t he have Cuffy Meigs backing on this? I, for one, will not be satisfied until the rich pay more taxes than the poor and every man has the chance at a government job at prevailing wages.

    Seriously though, why not just put a 90% tax on good ideas and call it a day. It’s feathers and leathers time folks.

  12. Er, if we can tax sales on the ownership of, say, cans of cheese dip, why not sales of ownership of companies?

    Because only wealthier people engage in the latter sales?

    I mean, cheese dip companies employ people too, you know?

    Huh?

    1. Nothing like reducing liquidity and creating cottage gray markets.

      Great idea. Two thumbs up.

    2. They do tax the product. It’s called capital gains and income tax.

    3. Oh, RC? Someone here is in need of an education in Iron Laws.

    4. you really support taxing food? only AL and MS currently still tax food at the same level as other consumer goods. 31 states don’t at all.

      and owning a can of bean dip is a final consumption. owning a piece of a company is not. further that company is taxed on its profits which effects the value of its stock, so a tax on stock transactions is a tax on a prior tax… nice.

      not that we aren’t already taxed at every turn. “what’s the harm in throwing in another” says the incredulous liberal. bah!

      1. *affects

        preview is for people smarter than me apparently…

      2. Michael Moore told Larry King that food is a right. Taxing that would be a sin, no?

        Especially considering Moore’s need for between-meal meals…

    5. We subsidize cheese producers and then give away the surplus government stockpile of Velveeta to senior citizens. Velveeta is perfect for cheese dip.

      Can you choose a different product?

    6. Is there a federal sales tax I am unaware of?

  13. Stupid fucking people should not be using the oxygen of not stupid people.

    We need a tax on public offices. lets put put capital hill and city hall to work for main street.

    1. Poor, poor people who work on Side Street. No one ever cares about their plight.

      1. The people out on country road 4 get the shaft too.

  14. I just don’t know how we could have predicted that putting Democrats in power would somehow lead to higher taxes.

    1. I am shocked to. Economic idiocy and higher taxes. Who would have thunk it?

  15. I have a friend who is convinced that the stock market somehow or another regulates the entire world. “Let’s increase the Dow today so that we can make a bundle,” they say as they twirl their mustaches.

    Or something like that.

    … Hobbit

  16. Half of the revenue generated would go to reduce the federal deficit, [DeFazio] said. The other half would go to fund jobs creation programs.

    See, it’s for such good causes. Who could possibly object?

    Why does it never occur to these folks that … oh, never mind! 8-(

  17. Please explain how Goldman, with its supercomputers parked right next to the stock exchange, swooping in and buying and reselling a stock my mutual fund is about to buy on my behalf a hundred milliseconds before we get it in any way, shape, or form related to raising capital for corporations?

    The high-volume, high-frequency robo speculating on Wall Street is just a casino built on top of the portion of the banking industry that yes, does real work.

    1. Choad, does the word “liquidity” mean anything to you? The more participants in the market, and the more money they have to trade with, the more liquidity is available.

      Not that I’m expecting you to follow this, but even the government that you’re trying to get to name you Toady of the Century recognizes that liquidity in the financial markets is a good thing.

      -jcr

      1. Since I’m assuming that the word has absolutely no meaning to Chad or to MNG, I’ll step in and explain it to him:

        No one would hold any non-cash financial instrument if he could not be reasonably sure that he could readily liquidate it into cash at need.

        If a market was composed solely of “long term investors” or “producers” or whatever code word some asshole Democrat is currently using to mean “non-speculator”, you could not be sure that a ready market would exist to let you convert your financial instrument to cash at need.

        Asshole populists blame speculators for wide swings in market value, when nothing could be further from the truth. It is in the absence of widespread speculation that you get widespread swings in market value, because the market value is dependent on the availability of bids, and an illiquid market made up of non-speculators will have wide spreads between bids. [Especially since as soon as everyone realizes that a market has become illiquid, even the non-speculators flee, since no one wants to be caught with an asset they can’t sell].

        Will this tax destroy speculation in the market all by itself? Nope. But what is offensive is the entire mindset expressed in the concept that “long term investors” are good and “dirty speculators” are bad. It’s the same old medieval nonsense that asshole pseudo-gentry with no fucking brains have been pushing for centuries.

        I hope my disdain and condescension were palpable in the text of this message, because I was really trying to express those as best I could.


        1. It is in the absence of widespread speculation that you get widespread swings in market value, because the market value is dependent on the availability of bids

          exactly. this is the same problem faced in mark to market asset valuations…

        2. Odds of Chad or MNG responding with “Damn, Fluffy, you are right, nevermind”?

        3. I hope my disdain and condescension were palpable in the text of this message, because I was really trying to express those as best I could.

          I’m not sure how you really feel though.

        4. I hope my disdain and condescension were palpable in the text of this message, because I was really trying to express those as best I could.

          The direct method is so much more cathartic.

          As in, “Someone needs to kill these fucking morons with a spork and french fry.”

          I feel better already.

        5. No point in arguing with haters of capitalism, Fluffy.

          It IS fun, though.

    2. high freq trades might be a problem, but I’m not sure a solution to them wouldn’t cause more problems.

    3. a stock my mutual fund is about to buy on my behalf

      You own shares in a mutual fund? That means you have more money than you need. Cough it up, fucker, people need it more than you.

  18. Hello, Franfurt, London, Zurich, Shanghai, Singapore, and every other stock exchange on the planet! I guess you’ll be getting the business that the US government doesn’t want to have in the USA anymore.

    -jcr

    1. Toronto, man, Toronto. Canada’s much more convenient to U.S. companies than Europe or Asia.

    2. London already has a stock transaction tax.

  19. “Let Wall Street Pay for the Restoration of Main Street Act of 2009”

    Pretty amusing–considering that Mayor Bloomberg has admitted repeatedly that Wall Street in fact HAS paid for the recovery of Main Street in NYC–by contributing the lion’s share of corporate taxes. One gets the sneaking suspicion that this isn’t what all this is really about, but rather it’s the sight of brokers in top hats and monocles that’s offensive. Nah, that couldn’t be.

  20. Thank the FSM my startup is only doing an angel round and not an ISO (not that we’re anywhere close to that anyway).

    The fact is, politicians are going to try and parlay the country’s anger at the bailouts into tax revenue and away from themselves. Does this surprise anyone?

  21. Half of the $150 billion in tax revenue would go toward reducing the deficit, while the other half would be deposited in a “Job Creation Reserve” to support new jobs.

    The job fund would be available to offset the additional costs of the 2009 highway bill and other legislation that creates jobs. […]

    Nice government and union jobs no doubt. They’re just what the economy needs – more jobs supported and paid for by those who don’t have government jobs. Which non-existent congressional district are these going to be in?

  22. Can we just outlaw jobs already?

    1. Can’t do that. People have to work. They’ll just have to be union employees.

      Every one of them.

      Even if they don’t have jobs.

  23. It is an inherently democratic phenomenon — you no longer need to curry favor with the local bank president or government official just to open up a business.

    ^^^This is exactly why the leftists oppose it.

  24. fcuk libruls!

  25. “It always astonishes me how liberals”

    LOL, it always astonishes me how the reasoning of politicians and their supporters can astonish anyone.

    It is very simple. For the smartest of them, it’s not based on cause and effect. It’s based on taking what you can get away with so that you can then turn around and be the benevolent provider and master to the masses. For these few, unintended consequences are a bonus, more crisis in which they can come to the rescue.

    For the rest, I think most are simply ignorant and base their belief on “faith” in the superior morality of their leaders which is clearly manifest to them by their leader’s constant denunciation of greed and demonstrated concern for the victims of the world.

  26. If you’re going to complain about the impact of Federal regulation on the public equity markets, how about complaining about the vastly more onerous regulations on the private equity markets? The Securities Act has been a millstone around the neck of private equity for decades.

  27. “Your bill would put Wall Street to work for the public good, by placing a modest securities transaction tax on trades of stocks, options and swaps. A tax on these trades has little impact on the average investor or pension fund because they hold their investments for the long term, but it does disincentivize Wall Street gambling and high-volume short-term speculative trading,” the organizations wrote.

    These jerkoffs always claim the same fucking thing with these taxes:

    1) it will raise oodles of money that will be used for good things

    2) it will suppress some behavior that makes statists unhappy

    They don’t see how 1 and 2 contradict each other. (Or they do see it, and hope that nobody else does.)

  28. I don’t see how this is different from a Tobin tax.
    It’s a good idea, because it discourages short-term flipping behavior and encourages long-term investments.
    Or is there something wrong with that?

    1. See Fluffy’s post at 9:34 PM

      Which, in a reasonable universe, would be easy to find because it wouldnt be threaded.

    2. I will say something else, government should never be using tax policy for social engineering purposes.

      See Fannie/Freddie for examples of the problems that causes.

      1. Do they ever? Is the cigarette tax social engineering, or just an excuse for them to get more of your money?

  29. The vast majority of stock transactions don’t raise money for the companies. The companies sell the stock once (during and IPO or later on when they sell Treasury stock, which is pretty rare). All of the other transactions happen between private parties and have limited effect on the company’s bottom line. This doesn’t mean the stock transaction tax isn’t stupid, however.

    1. Yeah, but shares during the IPO would be sold for much less if it weren’t for the liquidity. The whole point of having market-makers (Wall Street) is that it allows an individual (or a pension fund, mutual fund, etc) to sell whenever he wants or needs too.

  30. Wow…
    And all this from the state with no general sales tax.

    How is the estimate of $150 Billion Made? Before or after eliminating 99% of the “Day Trading”?

    Consider Apple, for example. $200/share. 1/4% would be 50 cents per share per transaction. Buy or sell 1000 shares and the government takes a $500 commission, whether or not the trade results in a net profit or a loss. Remember, of course, the government already taxes all profits quite steeply.

    Only half of the tax going into reducing the budget DEFICIT. Whereas 100% of any other tax would go for reducing the deficit. Let’s work out a way to run the government within it’s own means… then start whittling away at the NATIONAL DEBT, not just commenting on how we could potentially decrease the speed in which the debt continues to increase.

    And, what’s all this “Main St. vs Wall St.”? What street are all those people that got overextended on their home mortgages living on? Where do those people live who refinance their mortgages UP… rather than paying them down?

  31. It’s just like the rationale used for upping capital gains tax: “This tax will overwhelmingly affect the wealthy”. The fact that it affects small-scale traders and investors as well is somehow always overlooked.

  32. I am a collector of well priced artifacts. But I was scared that I would be sued multiply by govt. but you site has given me ways to save my assets. Your information on is a full package of help anyone needs. I appreciate that. Thanks. anonymous transactions

Please to post comments

Comments are closed.